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Rising consumer costs helped push the latest estimate for the Social Security Cost of Living Adjustment to 5.3% next year.
Whether retirees actually do this for their monthly checks in 2022 depends heavily on the economy, including the Federal Reserve’s decision to raise interest rates.
The 5.3% estimate was computed by the Senior Citizens League, an impartial senior citizens group, based on data from the Bureau of Labor Statistics consumer price index through May.
If this amount were enforced, it would be the highest annual adjustment since 2009, when benefits had increased by 5.8%.
In 2021, Social Security beneficiaries received a 1.3% increase in their monthly checks.
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The Senior Citizens League estimated COLA at 4.7% for 2022 based on data through April.
The annual social security cost of living adjustment is calculated from the Consumer Price Index for Urban Wage earners and Office Workers (CPI-W). There are still four months of data to go before the official estimate for next year is available.
The month-on-month increase in the Senior Citizens League estimate is due to rising costs caused by inflation, according to Johnson.
The biggest increase was the price of gasoline, which increased by 56.2% from May 2020 to May 2021.
Used car and truck prices rose 29.7% this year.
The prices of other everyday items also rose. Bacon rose 13%, citrus fruits 9% and milk 7.2%.
However, not everything rose. For example, the cost of ground beef fell by 5.8%.
How these prices move over the coming months – and whether the cost of living adjustment stays the same, increases or decreases over the next year – will depend on these consumer costs.
Any action by the Federal Reserve could change the development of these rates. Although the Federal Open Market Committee meets this week, the central bank is unlikely to announce any changes. However, it could signal how it feels about its future plans.
“A lot will depend on what happens next,” said Johnson. “When they announce that they are going to raise rates, it will be very interesting to see how that affects COLA.”